Investors Demand $21M from Pacificor

(CN) - More than a dozen investors say the Pacificor hedge fund put bankrupt subprime lender Quality Home Loans in a "financial stranglehold to drive the company to ruin and buy up the wreckage for a song.

In their complaint in Los Angeles Superior Court, the investors say the late Michael Klein, the former head of Pacificor who died in a 2007 plane crash, worked alongside defendant Alim Kassam as prime movers of a scheme that fleeced them for more than $21 million.

Klein promised Quality Home Loans (QHL) founder John Gaiser to be a "friend" and "mentor," then persuaded him to make risky investments just as the subprime mortgage crisis began and QHL was considering "winding down," according to the complaint.

Once the "largest hard money lender" in the nation, QHL filed for bankruptcy in 2007 after Klein and Kassim had taken control of the company by extending a credit lifeline and pushing high-risk, high-dollar purchases at a time when most lenders were running scared, the lawsuit states.

"Using its superior economic position, Pacificor then tightened an economic noose around the neck of QHL by denying credit it previously agreed to extend and credit that was already secured, renouncing an agreement it made, declaring an unwarranted default in QHL's existing credit arrangement with Pacificor, and threatening foreclosure ... if the [plaintiffs] Gaisers did not capitulate to a new and highly unfavorable deal that would require giving up the company for token consideration," according to the complaint.

lawsuit says.

Gary Fasola, three members of the Gaiser family and 18 other plaintiffs demand $21.1 million from Pacificor and affiliates and Kassam. They allege fraud, breach of fiduciary duty and interference with economic relations.

The plaintiffs are represented by Walter Lack with Engstrom, Lipscomb & Lack of Santa Monica.

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